1. Introduction

Recently effective exchange rates for many ‘core’ countries and some of the ‘periphery’ have been subjected to detailed scientific research. Solomou and his collaborators did the painstaking job of data collection and developing a cross-country as well as cross-time comparability of among the different regions of the Classical Gold Standard. In a seminal paper with Catao (2000) Solomou questioned the conventional wisdom of the ‘fixed exchange rate regime, reflecting the predominance of an Anglo-American perspective’. This research aims at the inclusion of yet another area of the ‘periphery’ that was generally omitted so far when the operation of the Gold Standard and the interwar goldexchange regime is in review.

Our main purpose is to construct nominal and real effective exchange rates (EERs) of Bulgarian Lev. The hope is that compiling long-term historical series will encourage further studies on Bulgarian quantitative economic history. Applying today’s widely accepted economic methodology will enable us to test the potential of adjustment mechanisms in the Europe’s southeastern fringe. The current paper was inspired by the South-Eastern European Monetary History Network (SEEMHN) Data Collection Project1. This would be a second such attempt in the SEE region after the work of Lazaretou (1995) on Greek nominal and real exchange rate development. It would however try to follow more closely the Solomou’s methodology and calculate the effective ERs of the Lev based on a basket of the currencies of the Bulgaria’s main trading partners.

The current paper is divided into three parts. The main body of the research would be presented in the second part additionally subdivided into three sections. In the first subsection we make a brief overview of the applied methodology. The second and the third subsections focus on two key from analytical point of view periods 1879-1913 and 1927-1939. In the last part of the article we use standard econometric techniques to study some determinants of export behaviour and particularly the impact of REER and external demand on export development. Such an analysis could provide us with interesting insights on whether and under what circumstances REER influenced export development. Moreover, the quantitative analysis would allow us to give some suggestions on the devaluation dilemma in the 1930’s. Detailed presentation of data sources is presented in the Appendix.

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